Thursday, March 19, 2009
(Cont'd from above)...

Take, for example, Alcoa, Inc. (AA)...

Look, a week ago, we told you Alcoa was going to cut its dividend, which is something they did on Monday... That was an harbinger of bad things to come, as today they did a gigantic (secondary stock) offering... The company gave investors a double whammy... raising $1.3 billion selling convertible notes, 150 million new shares... Alright, it's 5.25% and, if you got in at the offering, you made money, because J.P. Morgan gave the stock a boost with an upgrade today... But we don't like the dilution... we don't like cuts. That's why we try to help you get ahead of the cuts. Remember, the show isn't always about the hottest stocks... There aren't that many hot stocks, despite what the press endlessly characterizes the show as... We are about learning how to preserve capital, and about teaching you how to identify, in somewhat of an entertaining way... the pitfalls of the market, as well as trying to help you, you know, how to make you money when you can.

So, we spend a lot of time trying to figure out the next dividend disaster... And, for these, we rely on Dave Pelletier... my colleague at TheStreet.com, where I'm the chairman... He runs the fabulous dividend stock advisor newsletter... What he really does is spot endangered dividends...

Unlike endangered species, we do not believe endangered dividends should be protected... In fact, I'm of the opinion that endangered dividends should be shot on sight...

Today, we've got two more stocks that we believe have unsustainable yields... endangered dividends... two companies that are taking the "trust" out of Real Estate Investment Trusts (REITs)...

Kimco Realty Corporation (KIM) and ProLogis (PLD)...

First, let's take Kimco... This is a REIT with a 21% yield... The company's paying out a quarterly dividend of 44 cents a share... The must-own date, if you want to collect that, is April 1st. I think it will be the last dividend at that level. There's really only one way a company ends up with a 21% yield... That's because the stock has cratered.

KIM has fallen from $47 to $8... and investors already believe the dividend is going down.

The company lost $51.5 million in the fourth quarter, and the CFO said that a dividend cut is likely coming before the end of the year. I think the dividend is going to be put through the veg-o-matic...

KIM's got $200 million in bonds coming due in the next year... The company's too leveraged... that means it's got too much debt. The analyst at Credit Suisse, who covers the stock, believes that KIM needs to issue $1 billion in equity to pay down debt, in order to become an investible stock...

This sounds like Alcoa to me... Hits you with a dividend cut, and then smacks you around with a big equity offering... And, if they screw it up, the company can still be in trouble...

How about PLD, the next offender?...

A warehouse and distribution REIT... with a 15% yield. In February, the company already cut the quarterly divided from 51.75 cents to 25 cents a share. I don't think it's enough. I think they need to go another whack at the apple...

This one's in a bad situation with $261 million in bonds coming due in August. Plus, PLD has a European unit that's trying to refinance $1.3 billion of debt. It's coming due by the middle of next year. This stuff is really hard to get done. The European unit has already eliminated its dividend. That's unfortunate. 48% of the company's sales come from Europe...

Alright, we nailed Alcoa, thanks to Pelletier... He says Kimco (KIM) and ProLogis (PLD) are next. I totally agree.

Bottom line...

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